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Ukraine is poised to restructure its debt, but Russia may hold the best cards in the negotiation. Russia bought $3 billion in Ukrainian Eurobonds in late 2013 to prop up a political ally, since-deposed. As Russian President Vladimir Putin himself has pointed out, these bonds have unique terms that let Russia call for early repayment, putting it ahead of Ukraine’s private creditors. Meanwhile, Russia and its proxies hold enough bonds to block a restructuring vote or hold out, sticking more losses on other creditors. Russia has refused to restructure the bonds in the Paris Club of government-to-government creditors, claiming that they are commercial debt. In all, Russia has effectively arbitraged the prevailing sovereign debt regime, where public and private lending to sovereigns are separated by legal form and restructuring institutions. Because the bonds in question are governed by English law, the U.K. Parliament can limit the scope for abuse by making them unenforceable. Such legislation has ample precedent, and would compare favorably to traditional sanctions. Uniquely among sanctions, it would not only punish Russia, but could deliver immediate financial relief for Ukraine.

Publication Citation

Cap. Markets L.J. (forthcoming)